The third quarter of 2010 was characterized by a rebound in global equity markets, which lead to rising stock prices. Income hungry investors are starting to realize that certain safe-havens such as US Treasury bonds do not look as attractive as dividend stocks. This has pushed many dividend stocks higher, particularly the ones with sustainable and growing distributions.
Back at the end of 2009 I selected four dividend stocks as part of a competition. The stocks that I selected were representative of the tobacco, real estate, master limited partnerships and utilities sectors. The main characteristic of these sectors was that they consist of stocks with above average yields. The higher yield not only softened investor losses during the second quarter of 2010, but also produced very good performance over the third quarter.
The stocks that I selected were not only attractively valued at the time, but also had sustainable and growing distributions. The companies include:
Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The monthly dividend company has paid rising dividends for 16 years in a row. Right now this dividend achiever yields 5.10% ( analysis)
Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets in North America. The second largest master limited partnership in the US has raised distributions for 14 years in a row. This dividend achiever yields 6.40% (analysis)
Consolidated Edison, Inc. (ED), through its subsidiaries, provides electric, gas, and steam utility services in the United States. The New York based utility company has raised dividends for 36 years in a row. This dividend aristocrat current yields 4.90% (analysis)
Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. This global tobacco powerhouse has raised dividends every year since it was spun out of parent Altria Group (MO) in 2008. It offers not only a high yield, and a sustainable dividend, but also solid dividend growth potential. Yield: 4.50% (analysis)
Some of the companies such as Realty Income and Con Edison look overstretched at the moment. The hunt for yield has pushed these companies to levels of relative yield not seen for a while. Furthermore, given the slow dividend growth that they have experienced, I do not find them worthy of adding new money to these positions. The price you pay today would affect your total returns in the future. As a result, investors putting in new money in stocks like Realty Income (O) and Con Edison (ED) might not generate the same level of total returns as investors who bought the stocks at the end of 2008 for example. This being said however, these stocks are still at least a hold, as their dividends appear to be safe. But if you are in a DRIP plan in one of those stocks, you might be better off allocating the dividends in something more attractively valued.
Overall the picks I selected outperformed the picks of the other bloggers in the competition for a second quarter in a row. Here’s the ranking:
Dividend Growth Investor +21.34%
The Wild Investor +8.35%
Zach Stocks +0.84%
My Traders Journal -1.31%
Intelligent Speculator -7.86%
Million Dollar Journey -10.46%
The Financial Blogger -15.24%
Four Pillars -27.07%
While I own all of the stocks mentioned above, this stock picking competition is not representative of how investors should invest money. I believe that in order to be successful at dividend investing, one has to build a diversified portfolio of stocks, representative of as many sectors as possible. I would also add geographic diversification as a plus, as well as the need to build positions slowly over time, by dollar cost averaging.
Full Disclosure: Long ED,PM, KMR, O
- Reinvest Dividends Selectively
- Four Characteristics of The Best Dividend Growth Stocks
- 2010’s Top Dividend Plays
- Dividend Investors are getting paid for waiting
Every dollar that you have in your possession can be traced back to you exchanging your labor for money. The labor you provided was essentia...
A common question I receive deals with the amount of money needed for retirement. This amount varies depending to personal situations. 1...
Last month, I discussed with you reasons to have your own unique investment strategy . I reached the following conclusion: If you follow ...
I recently read the following announcement from Vanguard : " Vanguard Dividend Growth Fund (VDIGX) is closed to new investors as of J...
This guest post was written by Joe Ferris, who is a long-time reader of the site. The author now manages money professionally and creates in...
It is important to understand the simple math behind early retirement. Your savings rate, and asset returns will determine how long it takes...
The most common question or variation of a question I get concerns the amount of time to monitor my portfolio . This includes monitoring exi...
I invest in dividend growth stocks in order to generate a rising stream of dependable dividend income. Dividend income is more stable than c...
Last week, I wrote a groundbreaking article, which outlined the basic premise that interest rate levels affect P/E ratios that investors ar...
Interest Rates affect the multiples on stocks. We all know that companies can grow earnings and dividends over time, while bonds offer a fix...